2013 (6) TMI 425 - AT - Income Tax

Re opening of assessment - excess carried forward of unabsorbed deprecation was allowed in the assessment order - hypothetical income credited to the profit and loss account while computing book profit u/s 115JB - amount debited to the profit and loss account on account of Provision for gratuity which was an unascertained liability hence added back to arrive at the book profit - Held that - From the reasons for reopening it is observed that the AO. reopened the assessment u/s.147 on the basis of the facts that came to his notice from the examination of the assessment records. That means, the facts on which the A.O. formed his satisfaction that income of the assessee had escaped assessment for the year under appeal, were all available on the assessment records and such satisfaction was not based on any new facts or any change in law. There is no dispute that the assessee had reduced an amount of Rs.2,62,76,653/- on account of adjustment for hypothetical income credited to income, from the figure of Net Profit as per its profit and loss account while computing its Book Profit U/S 115JB of the Act. The AO. had, while completing the assessment uls 143, computed Book Profit u/s 115JB and in such computation had t also reduced the impugned amount of Rs.2,62,76,653/- . Also the assessee had claimed and was allowed in the assessment completed u/s 143, a deduction of Rs.2,06,47,310/- towards Written- off amount of intangible assets as had been appropriated from Net profit in the profit & loss account as Extraordinary items . The A.O. himself has noted in the reasons for reopening that he noticed the above facts on examination of the assessment records , which means that those facts were all available on record of the AO. before the reopening. The reopening was not done on the basis of any new material. Thus it is seen that in the recorded reasons there is not a whisper by the AO that the income chargeable to tax has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary. As decided in E.I.Dupond India Ltd. vs DCIT (2013 (2) TMI 406 - DELHI HIGH COURT) it was incumbent to the AO to demonstrate that there was failure on the part of the assessee to fully and truly disclosed all material facts necessary for its assessment. In favour of assessee.

Summary

Issues Involved:
1. Whether the reopening of the assessment under Section 147/143(3) of the I.T. Act, 1961 was valid.
2. Whether the reassessment notice issued beyond four years from the end of the relevant assessment year was justified.
3. Whether the reassessment was based on new material or merely a change of opinion.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147/143(3):
The Revenue appealed against the CIT(A)'s order annulling the assessment passed under Sections 147/143(3). The original assessment was completed under Section 143(3) on 08.03.2006. The AO issued a notice under Section 148 on 31.03.2010 to reopen the assessment, citing the assessee's claim and allowance of a deduction of Rs.2,06,47,310/- towards "Written-off amount of intangible assets" as an extraordinary item. The AO observed that only depreciation under Section 32 amounting to Rs.77,42,742/- was allowable, not the entire amount. Additionally, the AO noted discrepancies in the computation of book profit under Section 115JB, including adjustments for hypothetical income and provision for gratuity, resulting in under-assessment of book profit by Rs.2,73,09,248/-. The AO reassessed the income, adding back the disputed amounts.

2. Justification of Reassessment Notice Issued Beyond Four Years:
The assessee challenged the reopening of the assessment as bad in law, arguing that the notice under Section 148 was issued beyond the four-year period from the end of the relevant assessment year (A.Y. 2003-04). The assessee contended that reopening could only occur if new material or facts emerged post the original assessment. The CIT(A) found that the AO's reasons for reopening were based on information already available in the assessment records, implying a change of opinion rather than new material. The CIT(A) annulled the assessment, referencing the Supreme Court's decision in CIT vs Kelvinator of India Limited, which held that reopening based on a change of opinion is not permissible.

3. Reassessment Based on New Material or Change of Opinion:
The CIT(A) examined the reasons for reopening and concluded that the AO reopened the assessment based on facts available in the original assessment records, without any new material. The CIT(A) noted that the AO had already considered the disputed amounts in the original assessment, indicating that the reopening was a result of a change of opinion. The CIT(A) cited several judicial precedents, including the Supreme Court's judgment in Calcutta Discount Company Limited and the Delhi High Court's decision in E.I. Dupond India Ltd., emphasizing that reopening beyond four years requires a failure on the part of the assessee to disclose fully and truly all material facts, which was not demonstrated by the AO.

The Tribunal upheld the CIT(A)'s decision, agreeing that the reopening was based on the same set of facts considered in the original assessment, amounting to a change of opinion. The Tribunal confirmed that there was no failure by the assessee to disclose material facts, and the reopening was not justified. Consequently, the Tribunal dismissed the Revenue's appeal.

Conclusion:
The Tribunal concluded that the reopening of the assessment under Sections 147/143(3) was invalid as it was based on a change of opinion and not on new material. The reassessment notice issued beyond the four-year period was unjustified, and the reassessment order was annulled. The appeal of the Revenue was dismissed.